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There was a sigh of relief when ISM Manufacturing jumped back into positive territory at 51.5 after last month's surprising dip into contraction territory. The best part of the report was New Orders coming in at 55.1 which bodes well for continued growth in the manufacturing sector.
So if this is such great news, then why did stocks dip on the day?
Because the healthier the economy, the more likely the Fed raises rates. This was much more apparent in the 2 year Treasury move Monday where rates spiked +3.7%. Also the odds of a December rate increase is now up to 62%...meaning it is becoming a greater certainty.
Yes, we are living in a time of twisted logic. Where good economic news is often a negative for stocks...the exact opposite of how we were all trained as investors.
So it once again forces us to appreciate that this bull market is predicated on the Earnings Yield advantage of stocks over bonds. As long as rates don't run up too fast, and a recession is not in the air, then the bull market stays in place.
Neither seems to be a serious concern at this time. Thus, all drops in the market will likely prove to be great buying opportunities down the road...and thus now is the perfect time to build a radar screen with your favorite Zacks #1 Ranked stocks.
Best,
Steve Reitmeister
Executive Vice President, Zacks Investment Research
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